California Outlook Revised To Positive On Budget Proposal's Focus On Paying Off Debt And Building Reserves
|Publication date: 14-Jan-2014 14:18:53 EST|
SAN FRANCISCO (Standard & Poor's) Jan. 14, 2014--Standard & Poor's Ratings Services revised the outlook on all its ratings for California to positive from stable. In addition, we affirmed our 'A' long-term ratings and underlying ratings (SPURs) on California's $75.4 billion of general obligation (GO) debt. Simultaneously, we affirmed our 'A-' long-term ratings and SPURs on the state's $10.3 billion of appropriation-backed debt. "The outlook revisions reflect our view that Governor Jerry Brown's fiscal 2015 budget recommendation would build upon the improvements made to the state's finances in recent years," said Standard & Poor's credit analyst Gabriel Petek. "In particular, the plan's emphasis on debt repayment and appropriating funds to its reserve could be helpful in strengthening the state's fiscal position, in our view," added Mr. Petek. If a budget with such provisions were enacted, we believe that, within the two-year outlook horizon, the state's finances could be consistent with a higher rating, most likely of one notch. But the proposal also initiates reforms to some of what constrains the state's credit quality structurally. In so doing, the proposal opens to the door to longer-term and more significant rating improvement. Specifically, it offers a revamped approach to funding a rainy day reserve designed to counteract the effects of the state's revenue volatility. The budget proposal also highlights that the state teachers' retirement system (CalSTRS) is in need of a long-term funding strategy. And although the governor's proposal stops short of defining a plan for that, citing the need for one in the budget recommendation marks an important first step, in our view. But risks to the direction of the state's credit quality remain. RELATED CRITERIA AND RESEARCH Related Criteria
- USPF Criteria: State Ratings Methodology, Jan. 3, 2011
- USPF Criteria: Appropriation-Backed Obligations, June 13, 2007
- USPF Criteria: Financial Management Assessment, June 27, 2006
- Criteria: Joint Support Criteria Update, April 22, 2009
- Understanding California's Fiscal Recovery, Jan. 14, 2014
- U.S. State And Local Government Credit Conditions Forecast, Dec. 17, 2013
- California full analysis, Jan. 14, 2014
Complete ratings information is available to subscribers of RatingsDirect at www.globalcreditportal.com and at www.spcapitaliq.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
|Primary Credit Analyst:||Gabriel J Petek, CFA, San Francisco (1) 415-371-5042;|
|Secondary Contact:||David G Hitchcock, New York (1) 212-438-2022;|
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